As the 2017 year comes to an end, we enter into a new year with a new tax code for both individuals and corporations. In fact, the recently signed the tax reform bill represents the most significant tax changes for the United States in more than 30 years.
Many clients have reached out to us with questions and concerns as to how this new code would impact them at both the personal and business level. To make these changes easier to understand, we’d like to highlight the main points and changes we can expect in 2018.
The most impactful changes land on the personal side. Listed below are the top 9 changes from the 2018 tax code:
- Child Tax Credit: increased from $1000 to $2000.
- Individual Tax Rates and Brackets: In 2017, we had the 10%, 15%, 25%, 33%, 35%, and 39.6% brackets. For 2018, we see slight changes to all but two brackets. The new brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- Standard Deduction: Increased from $12,700 to $24,000 for Married filing joint couples; Increased from $6,350 to $12,000 for Single Filers; Increased from $9,350 to $18,000 for Head of Household Filers.
- C-Corporate Tax Rate: Drops from 35% to 21% FLAT.
- Pass-through income Corporations: WAS taxed at the individual tax brackets but now has an added 20% deduction bonus.
- Alternative Minimum Tax: Corporate AMT repealed. However, Individual AMT was NOT repealed. Instead, the exemption increased (discuss with your tax consultant at RHA further to find out if this impacts you personally).
- Personal Exemptions: Was $4050 per person but now no longer exists. This was replaced by the increased standard deduction.
- State and Local Income Tax: Was deductible in 2017 but now is capped at $10,000 TOTAL (between property and local income tax).
- Mortgage Interest: In 2017 and prior, you could deduct the interest on up to $1 million dollars in primary residence acquisition debt. For new loans beginning in 2018, that $1 million dollar exclusion drops to $750,000. This is only a limit on primary residences, NOT rental properties.
Even though these changes seem confusing and frustrating, know that your accountant or CPA is available to help.
Your CPA can help you prepare for these changes through proper tax planning. Make sure you reach out to your accountant at the beginning January of 2018, so you allow sufficient time to address updates.
We all have an obligation to pay tax as US Citizens. We also have the right to do tax planning. Through proper planning, you can pay your obligated amount of tax and not a penny more.